[Salon] The Day Webvan and other Brands Died.

[Adam Rifkin]

For the archive...

http://www.salon.com/tech/feature/2001/07/11/brands/print.html

The day the brands died
For their customers, the demise of the dot-coms has proved strangely
painful.

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By Ruth Shalit and Robin Danielson Hafitz

July 11, 2001 | In recent months, newspapers have devoted hundreds of column
inches to the economic, social and sartorial impact of the dot-com collapse.
Top-flight reporters have been dispatched to Silicon Valley to document the
pathos of the boarded-up lofts, the shuttered trattorias, the boy
millionaires who have gone back to working at Starbucks. But one aspect of
the crash has gone unexplored: the effect of the death of so many brands on
consumers themselves. 

A year and a half ago, at the height of the e-commerce spending spree,
Internet companies invested enormous sums of money in making an impression
on the public. Over $3.1 billion was spent on offline advertising alone, a
land grab for consumer "mindshare" unprecedented in marketing history.
Unlike traditional companies, which build brands over time through a
combination of advertising, in-store experience and product quality, the
dot-coms attempted instant branding. As Brian Mulhern, advertising director
for Outpost.com, told the New York Times in 1999, "First and foremost, the
job of dot-com advertising is to gain top-of-mind awareness." 

What happens when so many high-profile brands go from top of mind to the
bottom of the sea? Does the landscape of the consumer psyche change? To
explore that question, our advertising agency, Mad Dogs & Englishmen,
convened some focus groups in New York among people who had started making
these dot-coms part of their lives. They weren't venture capitalists,
information technologists or experience architects. They hadn't lost jobs.
They hadn't lost fortunes. They had just lost some of their favorite Web
sites. 

These days, it's fashionable to ridicule the dot-gones as chimerical
ventures, a meaningless blur of great parties and overhyped press releases.
And indeed, almost everyone we talked to had read the stories about the
sheer profligacy of it all -- the on-site massages, the Herman Miller
chairs, the copious cocktails and piles of jumbo shrimp. But enough
grave-dancing, our respondents said. They liked these companies. They missed
these companies. They wished they'd come back. "It's like the people who
love to hate Gwyneth Paltrow," said a young man from Brooklyn. "The term
'dot-com' has become something that people love to hate. But you know, a lot
of those companies were great. And my life is worse now that they're gone." 

What was particularly stunning, respondents said, was the unprecedented
speed of the meltdown. In ordinary times, high-visibility advertising is an
indicator of robust good health. Brands on life support don't advertise on
the Super Bowl. But suddenly, "there was no connection between a company's
marketing image and what was really going on," said one woman, a corporate
lawyer. "The month they went down, Eve.com [a beauty-products Web site] had
big two-page ads in all the women's magazines." She was left with a jar of
hair wax and 200 useless Eve points. 

In hindsight, the respondents felt they should have seen the danger signs.
These companies weren't behaving the way companies are supposed to behave.
Like an overzealous suitor who shows up with diamonds and a string quartet
on the second date, the dot-coms were pathological in their munificence. One
respondent said she knew it was all over when she accidentally kept a DVD
from Kozmo two weeks past the due date. She called the company to ask what
she owed. They informed her they had no system for collecting late fees. "It
was great," she said. "But it also made me realize: Their days are
numbered." Others started biting their nails when Urbanfetch dropped by with
free cookies, or when Amazon started selling Palm Pilots below cost. "You
just wanted to say, 'Stop it!'" said one young man, a medical student. "It
was too much. There was something scary about that kind of transaction." 

But though all the pampering made them uneasy, it didn't stop them from
taking advantage. And now, in the cold light of day, they blame themselves
for being so piggish. "There was a looting mentality going on," said one
respondent. "Now we all feel shame." Many loyalists of now-defunct Web
companies are convinced that their favorite sites would still be in business
-- if it weren't for their own selfish sense of entitlement. They wish
they'd shown more restraint. "I was one of those people who wanted a candy
bar, and had it delivered," said one man plaintively. "Now I feel depraved.
Those low-dollar items -- that was what killed Kozmo." 

It's not surprising that, among beneficiaries of the bubble economy, fixing
culpability for "Who lost Kozmo?" has become a bit of an obsession. The
online delivery firm, which folded in April after spending more than $120
million trying to find a profitable way to deliver movies and ice cream to
couch potatoes, represented more to consumers than just a company. It was a
symbol of what life was going to be like for members of the Internet
generation. "We were already getting information and images in our homes, at
any hour, at any time," said one woman, a production manager. "Now, it was
three-dimensional stuff we were getting." Suddenly, life itself was as easy
as sending e-mail. 

Even more than the silencing of the sock puppet, or the spectacular crash of
Boo.com, the death of Kozmo was a painful event, a watershed moment in the
psychology of the economy of diminished expectations. It meant an end to the
dot-com dream of instant gratification, constant connection and free stuff.
"After sitting at home in my bathrobe, and having some nice man hand me my
movie, how can I ever go back to Blockbusters?" asked one woman. "It's like
living in a Third World country." Said a young man, a retail clerk: "I'm
just so tired now. I'm tired all the time." 

Will the death of all these brands be a momentary blip, or will it affect
the way people approach relationships with brands in the future? Among the
men and women we spoke to, there was a sense of deflated confidence in new
brands, and a neurotic anxiety about forming new habits they might have to
unlearn. "I'm paranoid about other companies now, and whether they're going
to make it," said a 30-year-old copywriter. "Particularly MyCornerDeli.com.
I've got to guess its days are numbered." Webvan? Napster? Which would be
the next to fall? (As it turned out, Webvan went out of business two weeks
after our focus groups.) The concerns went beyond the usual snarky
handicapping of the dot-com death watch. Our respondents were legitimately
concerned about losing urban perquisites they'd come to rely on. "Once you
incorporate these things into your everyday routine, it's really hard to see
them disappear," said a editorial assistant who works in Midtown. "When I
heard about Kozmo, I started worrying about Vindigo [an online service that
allows mobile device users to call up the location of the best restaurants,
coffee shops, bookstores, etc. in 20 cities]. Vindigo can't go away. It's a
public service. People won't be able to function." 

Of all the companies on the endangered list, Amazon.com is a source of
particular worry. "I'm no real businessperson," said one participant, a
23-year-old graphic designer. "And I don't remember, two years ago,
wondering about business models, or any of that. But I do lie awake at
night, worrying about how Amazon stays in business." 

She lies awake at night? Rarely have 20-somethings fretted about how
Wal-Mart makes money, or whether Brooks Brothers can scale. But the dot-com
psychodrama has enmeshed regular people in a morality play of capitalism.
These days, art students with mehndi armbands talk about companies with the
fevered earnestness of panelists on CNNfn. There is anxious talk of burn
rates and business models, and of whether or not a popular online shopping
site has blown through all its venture capital. And, to an unprecedented
degree, people's relationships with brands are linked to their perceptions
of these variables. "Every time I go onto eBay, I think to myself, 'This is
a model that makes sense,'" one woman told us. For the new, ultra-wary
consumer, a trip to eBay is a rewarding experience -- not just because it
may offer a Pez dispenser she likes, but because each visit confers a sense
of cozy complicity in a business model that works. 

It's strangely appropriate, in fact, that in this age of business-model
fetishism, the last thriving Internet brand is not a brand in the
traditional sense, but a pure, naked business model, the aggregate of
millions of unbranded transactions. The antithesis of the classic dot-com
marketing model, eBay built its reputation not out of ad dollars or free
logo mugs, but out of users' actual experiences. It cultivated not
mindshare, but habituation. As a result, as the great Internet land grab
turns into a funeral march, this generic anti-brand is one of the last
brands standing. 

Today, in addition to its galleries of action figures and etched-crystal
tumblers, eBay does a brisk business in the totems of dot-com bereavement.
The site now functions as a virtual reliquary for the detritus of such
heavily marketed ex-brands as Pets.com, eToys, and, yes, Kozmo. Distraught
consumers seeking memento mori can buy the messenger bags, the motor
scooters, the cycling jerseys, even a giant orange helmet. "This bright
helmet, with a green Kozmo running man on each side, is in excellent
condition," writes the seller, mth111@aol.com. "It is a thing of beauty for
a devout Kozmo fanatic to behold. This is, without question, the best Kozmo
souvenir I have ever come across. I doubt there are many in existence. Good
luck." 

Bidding opened at $100. More mindshare for Kozmo. Another $2.99 for eBay. 


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About the writer
Robin Danielson Hafitz is the managing partner and chief strategic officer
of the advertising agency Mad Dogs & Englishmen. 

Ruth Shalit is an account planner at Mad Dogs & Englishmen, a New York
advertising agency. For more columns by Shalit, visit her column archive.  


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http://www.tidbits.com/tb-issues/TidBITS-588.html#lnk2

Where Webvan Went Wrong
by Adam C. Engst <ace@tidbits.com>

Last week's demise of Webvan came as absolutely no surprise to Tonya and me,
since we'd been Webvan customers - for a while - after their acquisition of
HomeGrocer a year ago. We'd seen the differences in the way the two
companies did business, and while HomeGrocer certainly had an uphill battle
to survive, Webvan seemed set on driving the company out of business. Here
are a few of the many places they went wrong, particularly in comparison
with HomeGrocer, the Seattle-based service that got us turned on to Internet
grocery shopping in the first place.

<http://db.tidbits.com/getbits.acgi?tbser=1184>

Too Much Money to Burn -- I've seen differing numbers for the amount of
money that Webvan burned through, but it's between $800 million and $1
billion. That's a lot of money, and is indicative, I think, of both the
exuberance of the Internet investment community when Webvan started and the
belief that any sort of shopping could be done better on the Internet than
in person. Significant investment is normally a good thing, but in this case
the vast sums acted to Webvan's detriment, not to mention the detriment of
the entire industry. Webvan used its money in two basic ways: to build up an
expensive infrastructure and to expand rapidly across the country.

Webvan spent huge sums on high-tech warehouses that were designed to
revolutionize distribution, but they turned out to be mostly a waste of
money. The problem is that all the technology was meant to reduce labor
costs, and labor is relatively cheap. Worse, Webvan designed the warehouses
so they could scale to 8,000 orders per day, but that's a lot of unnecessary
expense when you're receiving less than half that many orders. So Webvan
would spend something like $35 million on a warehouse, whereas HomeGrocer
spent only about $15 million for a much less automated warehouse - you can
buy a lot of labor for $20 million. The fancy warehouses didn't even
necessarily work better. For instance, Webvan created an automated freezer
room that required only a single employee to pick items for customer orders.
But since the freezer room was in fact freezing, no one could stay in there
for more than a few minutes without suffering hypothermia. In contrast,
HomeGrocer's low-tech freezer rooms worked fine, since the pickers could
quickly run in and out to get the necessary items and stay warm in the
process.

Infinite Expansion Creates Infinite Dilution -- The grandiose expansion
plans Webvan executed even in the face of the dot-com bubble bursting were
problematic at best. Most significantly, they put pressure on competing
Internet grocers in those markets. In an established, profitable business,
pressuring competitors in key markets makes sense, but in a situation where
everyone is losing massive sums of money in attempts to gain market share,
forcing head-to-head competition just makes it all the more likely that
everyone will fail. Numerous high-flying Internet grocers such as ShopLink,
Streamline, and, most recently, HomeRuns have fallen by the wayside in vain
attempts to compete with one another while trying to set themselves apart
from the traditional grocery stores.

<http://db.tidbits.com/getbits.acgi?tbart=06208>

The incredibly complex logistics surrounding Webvan's expansion plans also
made it difficult for management to concentrate on the basic business of
serving the customer. (In this case, I'll give them the benefit of the doubt
and assume they were distracted, not just incompetent, though as you'll see,
opinions vary on that count.) We'd had essentially no complaints with
HomeGrocer, particularly in terms of customer service, where they always
answered their email promptly and were great about providing refunds for the
occasional mistake or damaged food. As Webvan took over, our exchanges with
customer service gradually became more and more generic, until the last few,
which disappeared into the ether.
The final straw for us, though, was when produce quality started to suffer.
HomeGrocer employees had always done a good job at picking good produce, so
you didn't feel as though you were losing anything by letting them pick out
your peppers and apples. After we received an entire bag of rotten oranges
and were subsequently ignored by customer service, we decided to patronize
local grocery stores once again. It's entirely possible that Webvan was
buying inferior produce in an attempt to save money at that point, but one
of our drivers said that orders were being picked by temporary employees
with no incentive to do a good job.

Merge and Die -- Acquiring HomeGrocer was also a mistake. Though it made
sense on the surface, Webvan botched the acquisition almost entirely,
failing to merge the organizations in some ways and overriding HomeGrocer's
leaner approach in others. One painfully obvious mistake was eliminating
HomeGrocer's widely recognized peach logo on the delivery trucks frequenting
Seattle's congested freeways. The peach immediately conveyed the idea of
delivering fresh food, whereas Webvan's unremarkable, characterless "W" logo
indicated, well, nothing. Tonya and I jokingly awarded each other "peach
points" for being the first to spot a HomeGrocer truck while driving; after
the change, we mostly didn't even notice Webvan trucks. And as we complained
to our drivers after the trucks were repainted, they threw away a brand that
even toddlers like Tristan recognized.

<http://db.tidbits.com/getbits.acgi?tbart=06004>

If it looked bad from the outside, it was worse inside. HomeGrocer founder
Terry Drayton, who left HomeGrocer a month before the acquisition, has been
widely quoted as saying, "All I can say is that I am astonished at how
staggeringly incompetent [the Webvan management has] proven to be. In our
wildest dreams we never imagined that they would be this bad." After the
acquisition, morale among the HomeGrocer employees dropped precipitously, to
the point where they were openly disgusted with management changes. In the
early days of HomeGrocer, the drivers were excited by what they were doing,
and that excitement encouraged customers to have faith in the then-unusual
notion of buying groceries online. The difference in attitude after the
acquisition was particularly shocking.

<http://www.thestandard.com/article/0,1902,27911,00.html>

Was Survival an Option? If Webvan had held onto much of its money, spent the
remainder wisely, concentrated on its original San Francisco area market,
and expanded carefully once it had perfected its model, the company might
still be around today. The drive to capture market share that was so
prevalent in the exuberant days of Internet commerce makes sense in some
fields, but in the grocery field, where margins are razor-thin, it's
difficult to see how an unprofitable business model can easily be turned
into a money-making one if only there are enough people ordering - 750,000
in Webvan's case. (It's a perfect example of the saying: "We lose money on
every sale, but we make up for it in volume.")

More interesting is the question of whether HomeGrocer could have survived
if the acquisition hadn't happened. The company was still losing money at
the time Webvan came knocking, but customer loyalty in Seattle was extremely
high, they had great brand recognition, and they hadn't lost sight of the
fact that their customer service had to win over people who were utterly
accustomed to visiting physical grocery stores every week. Terry Drayton has
even talked about bringing HomeGrocer back, and although we're no longer in
Seattle to take advantage of it if he does, I'd certainly encourage him to
give it a try.

<http://seattlep-i.nwsource.com/business/30729_drayton10.shtml>

Despite the tremendous failures of Webvan and so many other Internet
grocers, it strikes me that the lesson is not that Internet grocery shopping
can't succeed, but that it requires tremendous care and attention to detail
when working out the business model. As indication that it's here to stay,
look no further than traditional grocery stores, which are continuing their
limited forays into Internet grocery shopping. Albertsons has slowly
expanded their coverage for delivery of orders place over the Internet, the
Dutch grocery chain Royal Ahold has a controlling stake in Peapod, and
Safeway has a significant investment in Texas-based GroceryWorks.
GroceryWorks also just received more money from the UK's Tesco supermarket
chain, which apparently has done a good job of making its Internet delivery
service profitable.

In fact, the moral may be that creating a new distribution network and
stocking warehouses simply costs too much when much of the infrastructure is
already available from existing supermarket chains. That may be bad news for
Terry Drayton in any attempts to revitalize HomeGrocer, but I think the
communities that can take advantage of Internet grocery shopping will
appreciate the services no matter who provides them. 


----
Adam@KnowNow.Com

War, what is it good for?  Absolutely nothing.  Say it again.